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Shares of Ford Motors have rallied more than 20% in the past three months on the back of solid North American operations, some improvement in Europe and surging sales in China. Ford’s Chinese sales have surged 49% through April, and the world’s largest auto market now accounts for about a sixth of the automaker’s global sales. Sales have been helped by the Focus and the Kuga, both of which resonate well with the Chinese customers’ demand for a value proposition.

Moreover, the company will also debut the EcoSport and the Explorer in 2013, so the sales for the full year should be pretty strong. However, the buck does not stop there. The automaker plans to launch a total of 15 new vehicles by 2015. The automaker is ramping up the number of dealers across the country and will raise the production level to 1.2 million units in the next two to three years. In fact, Ford is so bullish on China that it expects 40% of the unit sales to come from the country by the end of the decade.

Ford has traditionally lagged other major automakers such as General Motors, Toyota Motors and Volkswagen in China. While these companies have been investing heavily since the 90s, Ford was late to join the party, primarily because it chose to concentrate more on its American operations. But given the volumes now, Ford can no longer be treated as a small fish in a big pond. Ford now sells more cars than Toyota in China and its sales could top 1 million in 2013.

China sold close to 20 million vehicles in 2012, making it the world’s largest automotive market. However, ownership is a lowly 87 vehicles per 1,000 people compared to >800 vehicles per 1000 people in the U.S. About 60-70% buyers of the customers are still first time buyers. Thus, the market is nowhere near saturated, and there is still an opportunity for the automotive market to grow significantly.

We forecast the market to grow at a conservative rate of 4-4.5% annually keeping in mind the harsher regulations that exist today compared to the 70s and 80s when the American car market was booming. Moreover, the highly congested cities of China allow nowhere near the same vehicle density compared to the spacious American cities. Thus, people are likely to use a fair amount of public transportation as well.

Despite selling an awful lot of more cars, the company could barely manage to breakeven in Asia-Pacific, which includes the Chinese region. However, this is something that shouldn't be too worrying since its pretty common in the automotive industry for the companies to struggle to post profits during the initial years of investment. As long as the sales continue to rise, profitability will eventually catch up. In the coming years, as profits from the region surge, its contribution to the bottom line will be more evident.